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ERISA Watch – Plan Is Entitled to Recover Its Appellate Attorneys’ Fees for Time Spent Defending Fee Award

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Last week’s notable decision was about attorneys’ fees.   This week’s notable decision is also about fees:  Micha v. Sun Life Assurance of Canada, Inc., No. 16-55053, __F.3d__, 2017 WL 4896481 (9th Cir. Oct. 31, 2017).  And I love it when it’s the insurance companies that pick up the tab!  Since it’s close to that season and it has been a while since I’ve waxed poetic:

[a la jingle bells] Fees on fees, fees on fees, more fees all the way

Oh, what fun it is to read about attorneys’ fees all day

Dashing through the intro

On a day just like today

O’er the words we go

Laughing all the way

Hey hey hey

Keep my day job?  Ok, back to business.  Micha, a disability claimant, sued Group Disability Benefits Plan for Gynecologic Oncology Associates Partners, LLC (“the Plan”) and its insurer, Sun Life Assurance of Canada, Inc., challenging the denial of long term disability benefits.  The Plan cross-claimed against the insurer seeking reimbursement for any costs it was forced to expend in the lawsuit.  After the district court informed Sun Life it had serious concerns regarding Sun Life’s handling of Micha’s claim for disability benefits, Sun Life settled the suit.  The district court determined that Sun Life fully vindicated the Plan’s interests in the lawsuit and it awarded the Plan attorneys’ fees, which the Ninth Circuit affirmed.  The U.S. Supreme Court denied certiorari.  The Plan sought attorneys’ fees for defending its fee award at the Ninth Circuit, but the district court denied the petition.  It analyzed the Hummell factors only in the context of Sun Life’s culpability for pursuing the appeal (i.e., Sun Life didn’t pursue the appeal in bad faith since the Plan’s entitlement to fees was a novel issue).  The Plan appealed and the Ninth Circuit reversed the district court’s denial of the Plan’s motion for attorneys’ fees for appellate work.  The Ninth Circuit held that the district court, in weighing the various factors, was required to consider the full course of litigation, including the insurer’s pre-appeal conduct.  Considering all of the factors, the Plan was entitled to recover its appellate attorneys’ fees.  The court declined to adopt the Seventh Circuit’s automatic-entitlement rule since the issue was not raised in the district court. See Bandak v. Eli Lilly & Co. Ret. Plan, 587 F.3d 798, 803 (7th Cir. 2009).  Judge Berzon authored a concurring opinion because in her view “fees-on-fees” should be nigh unto automatic, in ERISA cases as in others.

Enjoy the rest of this week’s recaps and stay tuned for next week’s updates.

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

Second Circuit

Trustees of the Northeast Carpenters Health, Pension, Annuity, Apprenticeship, and Labor Management Cooperation Funds v. Patt Construction, Inc., No. 17CV1544JFBGRB, __F.Supp.3d__, 2017 WL 4990552 (E.D.N.Y. Nov. 1, 2017) (Judge Joseph F. Bianco).  “Here, the Court need not decide whether the respondent refused to abide by the arbitrator’s award without justification because the Collection Policy obligates employers who fail to make timely contributions to the Funds to pay attorney’s fees and costs incurred in recovering the delinquent contributions.”

Fifth Circuit

Red Oak Hospital, LLC v. Macys, Inc., et al, No. 4:16-CV-1783, 2017 WL 5010513 (S.D. Tex. Nov. 2, 2017) (Judge Melinda Harmon).  Cigna paid Plaintiff after it filed the lawsuit but as a result of a Texas Department of Insurance complaint filed by Plaintiff, rendering this action moot.  The court denied Plaintiff attorneys’ fees because it determined that Plaintiff did not receive the relief it was seeking as a result of filing the lawsuit.

Ninth Circuit

Micha v. Sun Life Assurance of Canada, Inc., No. 16-55053, __F.3d__, 2017 WL 4896481 (9th Cir. Oct. 31, 2017) (Before: Michael R. Murphy, Kim M. Wardlaw, and Marsha S. Berzon, Circuit Judges).  In this case where a participant sued the disability plan and its insurer challenging the denial of long term disability benefits, and where the Plan cross-claimed against the insurer seeking reimbursement for any costs it was forced to expend in the lawsuit, the district court awarded the Plan attorneys’ fees following the insurer’s settlement with the participant.  The insurer appealed the award, but the Ninth Circuit affirmed it.  The U.S. Supreme Court denied certiorari.  The district court, however, then denied the Plan attorneys’ fees for the time spent defending the fee award at the Ninth Circuit.  On appeal, the Ninth Circuit reversed the district court’s denial of the Plan’s motion for attorneys’ fees for appellate work.  The Ninth Circuit held that the district court, in weighing the various factors, was required to consider the full course of litigation, including the insurer’s pre-appeal conduct.  Considering all of the factors, the Plan was entitled to recover its appellate attorneys’ fees.

Breach of Fiduciary Duty

Eighth Circuit

Morin v. Essentia Health, No. CV 16-4397 (RHK/LIB), 2017 WL 4876281 (D. Minn. Oct. 27, 2017) (Judge Paul A. Magnuson).  The court adopted the R&R concluding that Plaintiffs had plausibly alleged claims for breach of the fiduciary duties of prudence and loyalty (Count I) and failure to maintain proper oversight of the recordkeeping fees (Count II).  The court denied Defendants’ motion to dismiss.

Central Valley Ag Cooperative, & Central Valley Ag Cooperative Health Care Plan v. Daniel K. Leonard, et al., No. 8:17CV379, 2017 WL 4863069 (D. Neb. Oct. 26, 2017) (Judge Laurie Smith Camp).  Plaintiffs, including a self-funded group health and disability plan, filed this lawsuit and their Motion for Temporary Restraining Order alleging that Defendants (claims administrator and brokers) breached their fiduciary duty to the Plan and engaged in a criminal enterprise in violation of RICO.  Plaintiffs argued that an immediate injunction is necessary to protect Plan assets or to preserve documentation related to Defendants’ actions.  The court determined that Plaintiffs did not demonstrate a threat of irreparable harm, and no other Dataphase factor favors issuance of a TRO or preliminary injunction.

Disability Benefit Claims

Second Circuit

Johnson v. The Guardian Life Insurance Company of America, No. 3:16-CV-01141 (MPS), 2017 WL 4870909 (D. Conn. Oct. 27, 2017) (Judge Michael P. Shea).  “After weighing the relevant factors, the Court concludes that Defendant’s decision to terminate Plaintiff’s benefits was arbitrary and capricious. After repeatedly finding Plaintiff disabled for a period of five years, Defendant decided, unprompted, to conduct a new review of Plaintiff’s eligibility shortly after learning that it was underpaying Plaintiff; Defendant encouraged Plaintiff to argue her disability case to the SSA, but then did not—or failed to adequately explain why it did not—consider the SSA’s ruling in Plaintiff’s favor; Defendant has a conflict of interest as the decision maker and payor of benefits; Defendant’s denial rested primarily on the opinions of two non-treating physicians who did not examine Plaintiff and whose opinions were not supported by key parts of the record; Defendant singled out a PCE and single progress note from Plaintiff’s treating orthopedist from a lengthy medical history put forth by at least three treating physicians, including the same orthopedist that documented substantial impairments over a long period; Defendant gave an inadequate explanation for its reversal of course after five years of finding Plaintiff to be disabled; and Defendant failed to consider adequately Plaintiff’s upper extremity limitations—a key difference between Plaintiff’s functional capability to perform sedentary work and no work.”

Sixth Circuit

Wallace v. Beaumont Healthcare Employee Welfare Benefit Plan, et al., No. CV 16-10625, 2017 WL 4987675 (E.D. Mich. Nov. 2, 2017) (Judge Linda V. Parker).  In this case, Plaintiff is a Registered Nurse who worked for her employer since 2005 and was covered under a group disability insurance policy insured by Hartford until January 1, 2013 when the insurer switched to Reliance Standard.  Plaintiff had been on medical leave from October 12, 2012 through April 7, 2013 and then left again starting May 12, 2013.  Reliance Standard denied her claim on the basis of a pre-existing condition.  The court held that Reliance Standard erred in concluding that Plaintiff’s coverage under its policy was not effective until she returned to work from medical leave on April 7, 2013 because under the policy’s Transfer of Insurance Coverage provisions, Plaintiff’s coverage was effective on January 1, 2013.  Based on this, the policy’s Pre-Existing Condition exclusion is inapplicable.

ERISA Preemption

Fourth Circuit

Shepherd v. Cmty. First Bank, No. CV 8:15-04337-MGL, 2017 WL 5004456 (D.S.C. Nov. 1, 2017) (Judge Mary Geiger Lewis).  In this case seeking retirement benefits under an ERISA-governed plan, the court dismissed as preempted by ERISA Defendants’ state law counterclaims for fraud, breach of contract/breach of duty of loyalty, unjust enrichment, and breach of fiduciary duty.

Exhaustion of Administrative Remedies

Sixth Circuit

Spectrum Health Hosps. v. Tooling Sys. Grp., Inc., No. 1:17-CV-642, 2017 WL 4868364 (W.D. Mich. Oct. 26, 2017) (Judge Gordon J. Quist).  The court granted summary judgment to Defendant, finding that its notice of denial of payment for the medical expense claim substantially complied with the purposes of § 2560.503–1 but Plaintiff waited nearly a month after the appeal period had expired to contact Tooling.

Medical Benefit Claims

Second Circuit

Hartford Healthcare Corp., et al. v. Anthem Health Plans, Inc., No. 3:17-CV-1686 (JCH), 2017 WL 4955505 (D. Conn. Nov. 1, 2017) (Judge Janet C. Hall).  On a motion to dismiss, the court determined that Anthem has not violated the ACA by reimbursing patients rather than Plaintiff Hartford Healthcare.

Ninth Circuit

Gomo v. NetApp, Inc., No. 17-CV-02990-BLF, 2017 WL 4950029 (N.D. Cal. Nov. 1, 2017) (Judge Beth Labson Freeman).  The court denied Defendant’s motion to dismiss the benefits claim and breach of fiduciary duty claim against NetApp after it eliminated the “lifetime” medical benefits provision promised to the plaintiffs (high level executives) as part of a special incentive to continue working for NetApp.  The court explained that the parties’ arguments about which documents govern are inappropriate for resolution on a motion to dismiss.

Taylor v. Eskaton Properties, Inc., et al., No. 2:16-CV-00102-KJM-DB, 2017 WL 4883364 (E.D. Cal. Oct. 27, 2017) (Judge Kimberly J. Mueller).  The court granted summary judgment in favor of Defendants, finding that it was not an abuse of discretion to deny coverage based on Plaintiff’s refusal to sign a subrogation agreement.

Pension Benefit Claims

First Circuit

Garcia-Tatupu v. Bert Bell/Pete Rozelle NFL Player Ret. Plan, No. CV 16-11131-DPW, __F.Supp.3d__, 2017 WL 4956915 (D. Mass. Nov. 1, 2017) (Judge Douglas P. Woodlock).  The court entered judgment for Defendant and concluded that the Retirement Board properly determined that the 2011 post mortem domestic relations order did not meet the requirements for recognition as a Qualified Domestic Relations Order.  A QDRO may direct the payment to an alternate payee of benefits that are otherwise payable to the participant, but it may not create an additional benefit and make it payable under the Plan.

Ninth Circuit

O’Rourke v. Northern California Electrical Workers Pension Plan, et al., No. 3:16-CV-02007-WHO, 2017 WL 5000335 (N.D. Cal. Nov. 2, 2017) (Judge William H. Orrick).  The court denied Plaintiff’s motion for reconsideration of its previous decision finding that the Board did not abuse its discretion in interpreting the prohibited employment provision to include his IBEW work.  Plaintiff has not established the requirements for equitable estoppel or plan reformation.

Pleading Issues & Procedure

Third Circuit

Hudson Hospital OPCO, LLC v. Regency Heritage Nursing & Rehabilitation Center, LLC, et al., No. CV 16-5673(FLW), 2017 WL 4882493 (D.N.J. Oct. 30, 2017) (Judge Freda L. Wolfson).  The court granted Defendant’s motion to vacate the default judgment against it for $1,045,909 in this lawsuit seeking recovery of medical expenses Plaintiff provided to Defendant’s insured.  The court found that Plaintiff properly served Defendant but the evidence does not support the kind of reckless or willful conduct required to be present on the part of Defendant in order to find culpability.  The court did schedule a hearing to address the issue of sanctions against Defendant.

Provider Claims

Fifth Circuit

Advanced Physicians, S.C. v. Connecticut General Life Insurance Company, et al., No. 3:16-CV-2355-G, 2017 WL 4868180 (N.D. Tex. Oct. 27, 2017) (Judge A. Joe Fish).  The court granted Defendants’ motion to dismiss in part.  Based on the allegations of the Third Amended Complaint, the court found AP’s contention — that it procured assignments from the patient-beneficiaries broad enough in scope to confer AP with derivative standing for its claim under 29 U.S.C. §§ 1132(a)(1)(A) and 1132(c), for refusal to provide information, and its claim for injunctive relief pursuant to 29 U.S.C. § 1132(a)(3)) — plausible.  Further, the court found it plausible that the assignments in question are broad enough to cover all of AP’s ERISA claims, Based on Fifth Circuit precedent, the court did not find it appropriate at this stage to dismiss AP’s claims for failure to allege exhaustion of all administrative remedies.  Lastly, the court determined that AP is barred from bringing a separate claim for injunctive relief under 29 U.S.C. § 1132(a)(3) since it has an adequate avenue for redress through its claims under 29 U.S.C. § 1132(a)(1)(B) (assuming it can cure the deficiencies in its complaint).

Retaliation Claims

Eighth Circuit

Johnson v. Lou Fusz Auto. Network, Inc., No. 4:17-CV-1909-AGF, 2017 WL 4889998 (E.D. Mo. Oct. 27, 2017) (Judge Audrey G. Fleissig).  The court struck Plaintiff’s demand for a jury trial because she is only entitled to equitable relief under ERISA Section 502(a)(3) and the Seventh Amendment of the United States Constitution only provides a right to a jury trial in lawsuits adjudicating legal rights and remedies.  The court did not strike Plaintiff’s request for back pay and lost benefits since she may be able to show they are incidental to her request for reinstatement.

Subrogation/Reimbursement Claims

Third Circuit

Yost v. Anthem Life Insurance Company, No. 3:16-CV-00079, 2017 WL 4873511 (M.D. Pa. Oct. 27, 2017) (Judge Robert D. Mariani).  The court expanded upon its reasoning in a prior holding that § 1720 of the Pennsylvania’s Motor Vehicle Financial Responsibility Law is not saved from ERISA preemption.  The court dismissed with prejudice the breach of fiduciary duty claim based on misrepresentation.  The court denied dismissal of Plaintiff’s claims for declaratory relief, violation of employee welfare benefit plan and policy, and breach of fiduciary duty-duty of loyalty.

Ninth Circuit

Rudel v. Hawaii Mgmt. All. Ass’n, No. CV 15-00539 JMS-RLP, 2017 WL 4969331 (D. Haw. Oct. 31, 2017) (Judge J. Michael Seabright).  Defendant claimed a lien against Rudel, seeking reimbursement of the $400,779.70 from his $1.5 million settlement.  The court concluded that Hawaii Revised Statutes Section 431:13-103(a) is saved under ERISA § 514(b)(2)(A).  The court determined that HMAA’s claim of lien is limited to reimbursement of any duplicative recovery that Rudel may have obtained.  Rudel’s motion to determine the validity of the health plan’s lien is granted in part.

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